The Chinese company makes solar panels that cost 35 percent less than Germany’s Schott AG and is headed to double sales in 2010. Its shares jumped 73 percent this quarter and lead Chinese stocks that are set to take the top five slots on the Bloomberg Global Leaders Solar Index for the first time in five quarters.
Solarfun, beating 499 of the 500 members in the Standard & Poor’s 500 Index, and Chinese makers of raw materials for panels like LDK Solar Co. gained an edge over German and U.S. rivals by mid-year. That’s when new energy and fiscal policies in Europe drove solar park developers to seek lower-cost panels to protect profit. Even after the gains, the Chinese stocks remain less expensive than Western counterparts in price-earnings terms.
“The Chinese are the ones to beat,” said Olaf Koester, head of renewable energy at VCH Investment Group, which oversees about 130 million euros ($165 million) including Chinese panel maker Trina Solar Ltd., up 62 percent this quarter. Their panels, or modules, are about 20 percent cheaper on average than those from German makers such as Conergy AG or Schott, he said in a telephone interview from his office in Frankfurt.
China’s manufacturers of panels and the polysilicon main ingredient have benefited from more than $20 billion in government loans this year while Western companies mainly seek private financing.
Long-Term ‘Winners?’
“In the long-term, the Chinese will probably be the winners,” said James Britland, an analyst at Allianz RCM, which oversees about $2 billion in assets, including Asian polysilicon producers. “The real driver is their lower pricing.”
The five best performers on the 38-member Bloomberg solar index include China’s JA Solar Holdings Co. and Renesola Ltd. The group trades at an average 8.3 times expected 2010 earnings. That’s below the index average of 29 times earnings and the 27 times earnings ratio of online travel agency Priceline.com Inc., the best-performing S&P 500 stock in the quarter, up 88 percent.
“All these Chinese manufacturers have very low multiples and all look to be pretty good value for what are essentially growth stocks,” said Matthew Page, who manages about $45 million in alternative-energy shares at Guinness Atkinson Asset Management in London, including shares in Trina Solar.
The Chinese manufacturers are riding the crest of a doubling of worldwide panel orders this year, having curbed production costs while improving quality to gain market share, said Martin Simonek, an analyst in London at Bloomberg New Energy Finance.
Less-Expensive Panel
A Solarfun polycrystalline panel with a 195-watt capacity costs 396.27 euros compared with 610.47 euros for a similar module made by Schott, including taxes, according to the Solar Fachhandel website that sells solar-power generating products.
China’s companies have newer production equipment than German competitors like Solarworld AG and Q-Cells SE and have “very cheap” access to capital for expansion, Simonek said.
State-run China Development Bank agreed to provide more than $20 billion loans to Trina, JA Solar, Yingli Green Energy Holding Co. and Jiangsu-based Suntech Power Holdings Co. Solarfun, also from Jiangsu, in July secured $1 billion from Bank of China and $885 million from the Bank of Shanghai.
Meantime, Western competitors have struggled to cut production costs and reverse a shrinking market share. Hamburg- based Conergy on Aug. 3 reported its first quarterly profit after 14 losses and has wrestled with financing for expansion.
“We have to work on lowering prices to better compete with the Chinese,” said Alexander Leinhos, a spokesman for Conergy.
Panel Price Importance
Panel prices became more crucial for solar park builders after Germany, the world’s biggest market for panel sales, lowered the premium prices, or “feed-in tariffs,” that consumers pay for solar power by 16 percent in July.
“Once the Germans started cutting the feed-in tariffs, that put a lot of pressure on pricing,” said Allianz RCM’s Britland. “With cheaper, high-quality Chinese panels you can still earn good returns.”
Chinese panel makers will boost their global market share to 60 percent this year because of their “low-cost structure,” Paul Combs, a Solarfun vice president, said in a telephone interview from Shanghai. He said Solarfun may more than double shipments to 700 to 750 megawatts from 300 megawatts in 2009.
Even with lower rates in Germany, companies will still install 9 gigawatts worth of solar equipment there this year, exceeding the U.S. by about 10 times, as developers rush to build before rates may be cut again, according to New Energy Finance estimates.
Officials at LDK Solar, Renesola, JA Solar and Trina didn’t return telephone calls for comment.
Currency Effect
China’s panels have become even cheaper for Europeans as the yuan fell almost 6 percent on the euro in the quarter, helped by the European currency rallying after Spain and Greece cut budgets. The euro’s drop in the first half depressed Chinese profits from European sales, fund manager Thiemo Lang said.
The Chinese in the previous quarter “were hit very hard by the weakness of the euro,” said Lang, the best-performing manager in New Energy Finance’s 2009 ranking of 41 funds that invest in clean-energy stocks. “The weakness of the euro was correlated with the weakness of the market.”
